Should Hedge Funds Support Barack Obama?

Barack Obama won the endorsement today of Chris Dodd, the head of the Senateâs powerful banking committee and beloved advocate of many of the hedge funds housed in his state.

Once again we marvel at the Obama knack for getting people on opposite sides of issues to support his candidacy. He has done it with private equity. If he can pull it off with hedge funds, who wouldnât be impressed?

Dodd is known as a Wall Street-friendly politician and recently earned a nod from equally Street-friendly Treasury Secretary Hank Paulson for his âconstructiveâ work on hedge-fund legislation. Dodd for a time was the biggest single beneficiary of hedge fund largesse. As of last June, when he still was in the presidential mix (he withdrew in January), Connecticutâs senior senator garnered $347,300 in contributions, mostly from SAC Capital personal, which gave him $209,600, according to statistics compiled by Absolute Return magazine and the Center for Responsive Politics. At the time, Barack Obama was running fourth in terms of hedge-fund donationsâbehind Dodd, John Edwards and Hillary Clinton.

Doddâs hedge-fund roots could be an important factor for Obama, given the potential financial support hedge funds could provide. Political endorsements run on a version of what your algebra teacher called the law of transitivity: If you support Chris, and Chris supports Barack, then you support Barack.

Obama looked well on his way to getting the hedge fundsâ approval even before the Dodd endorsement. Obama raised over $50,000 from investors in January, about two and a half times as much as Hillary Clinton and nearly twice as much as Republican candidate John McCain, according to data from Reuters and the Center for Responsive Politics. Hedge funds started pouring that money into Obamaâs campaign when he started pulling ahead in the primaries; last year, he wasnât as popular as Clinton was with hedge funds. Hedge funds gave Clinton $681,250 while Obama raised $552,374 and McCain pulled in $116,550.

There is a big hitch, however, and it is a doozy: Obama supports one of the most despised (by hedge funds) regulatory movements in years, the Congressional attempt to raise the capital-gains tax rate paid by hedge funds and private-equity managers to 35% from 15% now. As a Senator, Obama is one voice among many; as President, he would have the clout to make hedgehogsâ tax nightmare a reality.

Not that Obama still couldnât benefit from a rivalâs weakness. Hillary Clinton may have burned her bridges with hedge-fund managers by suggesting that âhedge fund dealersâ donât do real work, compared with others in America. No word on how her daughter Chelsea, who works for the hedge fund Avenue Capital, felt about that one.